Traditional Universal Life Insurance

Traditional universal life insurance, also known as non-variable universal life insurance, is the most basic form of ULI. The policyholder pays premiums into the policy, which are then divided between the cost of insurance and the cash value account. The cash value earns interest at a rate set by the insurance company, which is typically tied to a benchmark interest rate but may also have a guaranteed minimum rate.

Indexed Universal Life Insurance (IUL)

Indexed universal life insurance allows policyholders to allocate cash value amounts to either a fixed account or an equity index account, such as the S&P 500. The cash value's growth is based on the performance of the chosen index, giving the potential for higher returns compared to traditional universal life insurance. However, these policies also often have a cap on the maximum returns and a floor to prevent negative returns.

Variable Universal Life Insurance (VUL)

Variable universal life insurance combines the flexibility of universal life insurance with the investment opportunities of variable life insurance. Policyholders can invest the cash value in various separate accounts, similar to mutual funds, chosen from a list provided by the insurer. This allows for greater growth potential, linked directly to the performance of the selected investments. However, it also means that the cash value and death benefit can fluctuate based on market performance, which introduces higher risk compared to other ULI types.

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Guaranteed Universal Life Insurance (GUL)

Guaranteed universal life insurance focuses on providing a guaranteed death benefit for a fixed premium, without emphasizing cash value accumulation. This type of ULI is often considered a hybrid between term and permanent insurance because it offers the lifelong coverage of permanent insurance but typically with lower premiums and minimal cash value. It is suitable for individuals who prioritize the death benefit over cash value growth.